Stair-Step/Elevator Cable Rides

One of the strongest moving currencies this week had been the Great British Pound, in reaction to market noise that showed the possibility of quantative easing being addressed sooner than some had expected. The move that started on Monday, to move higher from 1.6280 started on Monday and stair-stepped higher throughout the week to reach up towards 1.6700

In trade on Friday the pair took an elevator ride lower, and retraced five days worth of trade in two 30 minute periods of trade that removed 350 pips from Gbp/Usd valuations. TheLFB Members were highlighted to the fact that cable had over-shot its mark in regard to long moves, and that a close under 1.6500 on a 4 hour chart would draw in sell orders. That certainly has followed through and the 1.6500 area will once again become massive upside resistance.

The strong beating came after the preliminary U.K. GDP numbers hit the news wires at -0.4%, with the market expecting a positive read of 0.2% that would reverse the previous read of -0.6%.

On the cable four hour wave count, prices are still searching for the top of blue wave a/i, which may be found somewhere below the 1.6740 resistance area. Traders should look for three waves of a pull-back in wave b/ii, which should fall for at least 38.2% of wave a/i once this one finds the top.

Once the corrective wave b/ii is complete a push up into wave c/iii is expected. The stochastic is still over-bought with a bearish divergence shown, which signals that a move lower over the next few days could easily happen.

After the pound lost 300 pips against the U.S. dollar, it also moved lower by 150 pips against the Euro and another 300 pips against the Japanese yen. These declines came as the U.K. economy showed contraction for the sixth consecutive quarter, suggesting that the recovery period will be very slow and prolonged, and obviously much longer than the market had already priced in.

With another poor GDP read in place, the sentiment and thought process of those holding Gbp positions will lean towards the Bank of England having to increase the size of the asset-buying program, rather than being able to reverse it as thought earlier in the week.

This is very bed news for the pound values; throughout September the same rumors sent the U.K. currency tumbling against practically every other major currency. In that month, the British pound was the worst performing major currency in the world, and in this environment, the pound is likely to underperform the other major currencies over the medium term, while it is also likely to extend the current downtrend against the dollar.

The U.K. GDP, the Q3 growth rate of 0.4% represents the sixth consecutive quarter in which the economy contracted, being the longest streak on record. Right now, the latest forecast say that the 2009 Q4 GDP will be negative as well. According to ONS (Office of National Statistics), the economy contracted a massive 5.9% from peak-to-trough in the last six quarters.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

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